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Boeing's new CEO in spotlight after a rough ride this year

Wednesday, February 17, 2016 - 21:42

Boeing Co's celebration of its centenary year is off to a rocky start, with new Chief Executive Dennis Muilenburg under pressure to address concerns about potential earnings and the strategy for its defense business when he meets with investors today.

PHOTO: REUTERS

[SINGAPORE] Boeing Co's celebration of its centenary year is off to a rocky start, with new Chief Executive Dennis Muilenburg under pressure to address concerns about potential earnings and the strategy for its defense business when he meets with investors today.

Boeing shares dived last week after a report that the US Securities and Exchange Commission is investigating how the company accounts for the costs of developing its airliners.

Neither Boeing nor the SEC have confirmed the probe.

Its stock is down about 22 per cent for the year to date, even after regaining some ground Tuesday.

Boeing has said that it has racked up more than US$30 billion in deferred costs for the 787 that it has not yet charged against its income statement. Some analysts have predicted Boeing ultimately will have to take a charge for the 787.

Muilenburg is scheduled to address investors at a conference in Florida at 9:55 am Eastern Time Wednesday.

On one hand, Boeing executives have told investors the civilian airline industry's boom will persist and on Tuesday the company said it expects to ramp 787 production up by 20 per cent to 12 planes a month by mid-summer.

However, uncertainty about global economic growth and cheap oil - which encourages airlines to keep older, less efficient planes flying - have persuaded some analysts that the cycle is turning.

Adding to Boeing's troubles, a key US agency on Tuesday rejected the company's effort to overturn an award to rival Northrop Grumman Corp of a US$21.4 billion contract to engineer a new bomber, plus options for the first 21 planes.

It was the latest setback for Boeing's military business, which was counting on winning the bomber contract to stay in the combat aircraft business as its F-15 and F/A-18 fighter jets near the end of production in coming years. Muilenburg ran the defense business before becoming CEO last year.

Boeing has struggled to find foreign buyers for its fighter jets after losing the F-35 fighter jet competition to Lockheed in 2001. US approvals for two such deals - to sell F-15s to Qatar and F/A-18s to Kuwait - have stalled, forcing Boeing to front its own money to keep the F/A-18 line running.

Boeing also had to take a total of US$1.3 billion in pre-tax charges on its KC-46A refueling plane program for the Air Force.

Loren Thompson, a Washington-based defense consultant, said Boeing needed a larger defense acquisition to help offset a slowdown in commercial sales. "It's not clear how revenues would grow in the near term absent an acquisition," he said.

Boeing had previously looked at buying the US unit of Britain's BAE Systems and even parts of Northrop Grumman Corp but those efforts never led to any formal bids, according to sources familiar with the matter.

In civil aviation, Boeing says it expects passenger traffic to rise 6 per cent this year, and the outlook for jetliner sales remains strong.

But it surprised investors last month by disclosing that it expects deliveries of its best-selling 737 planes to fall this year as it starts production of the successor 737 MAX. The drop will be made up in 2017, Boeing said.

Boeing also said last week it will make further job cuts in the airliner business.

The company has in the past cut plane production when output as a percentage of the worldwide fleet topped 7 per cent. Current output is about 6 percent and is due to hit 7.2 per cent in 2017, according to data compiled by Edmund Greenslet, an independent aviation analyst.